Thursday, October 30, 2008

Exxon Taxes = Federal Tax Revenue from 6 States

Third quarter results are out, and it's "Exxon bashing" season again. It's now widely reported that Exxon's $14.8 billion profits in the third quarter set a new record, but what has gone almost completely unreported again is that Exxon paid a new record $11.327 billion in income taxes to various governments in the third quarter.

A Google search of "Exxon" and "record profits" shows 109,000 results, which is 72 times more than the 1,520 results from a search of "Exxon" and "record taxes" (many of those are CD posts!).

On an annual basis, Exxon paid $30 billion in income taxes in 2007 and will pay an estimated $41.5 billion this year. How does that compare to the total amount of federal tax revenue collected from various states?

According to IRS data (available here from Wikipedia), the total federal tax revenue collected by the IRS from corporate taxes, income taxes, estate taxes, gift taxes and excise taxes from the six states of North Dakota, South Dakota, Maine, Vermont, Montana and Wyoming totalled $32 billion in 2007.

In other words, just a single U.S. corporation (Exxon Mobil) will pay more in income taxes this year to various governments ($41.5 billion) than the total amount of all federal taxes paid by the residents (more than 5 million) and businesses of those six states in 2007. In 2007, Exxon paid almost as much in income taxes ($30B) as the total federal tax revenue collected in those six states ($32 billion).

In a previous CD post, I estimated that Exxon will pay more in income taxes in 2008 to various governments than the entire bottom 50% of American taxpayers (about 67 million) will pay in federal income taxes this year.

David, why are only federal taxes a "fair comparison"? The pain of paying taxes seems unrelated to whom the recipient/confiscator is.

When I buy a gallon of gas, I find it interesting to look at the amount of my purchase that goes for taxes -- not just the amount that goes to evil-Exxon's bottom line. I care not a fig who gets my money -- only that they take it.

Probably a substantial chunk, David. But even if it weren't, the comparison is fairest as it's made already, since the story is less about taxes (or what we in the US can do about them), and more about media coverage.

Exxon doesn't make its money solely in the US, and the shocking headlines take full advantage of that fact, stating its worldwide profits. Thus, if the media wanted to be fairest, they would remember to mention taxes--not just those charged in the US, but also those abroad.

David: When Exxon profits get reported, nobody ever asks "How much of the profits are made in the U.S.?" If the press and public don't distinguish between domestic profits and non-U.S. profits, why should domestic vs. non-U.S. taxes matter?

When you include state corporate income taxes, the U.S. has arguably the highest corporate income tax in the world:http://www.taxfoundation.org/publications/show/22917.html

Opening paragraphs from that Tax Foundation report:

March 18, 2008U.S. States Lead the World in High Corporate Taxes

by Scott A. Hodge

Fiscal Fact No. 119

America's political leadership is finally waking up to the fact that the tax rates businesses face in the U.S. are way out of step with our major economic competitors. Last year, for example, Ways and Means Chairman Charles Rangel proposed cutting the federal corporate tax rate from 35 percent to 30.5 percent. While a 5 percentage point cut in the federal corporate tax rate may sound significant, it may not be sufficient to meaningfully improve the competitiveness of the United States.

Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan's combined rate of 39.5 percent.1 Lowering the federal rate to 30.5 percent would only lower the U.S.'s ranking to fifth highest among industrialized countries.

More recently, other members of Congress—including Sen. John McCain and Congressman Eric Cantor—have released proposals to cut the corporate rate even deeper to 25 percent. While this lower rate would improve the U.S.'s international ranking and competitiveness, that improvement would be mitigated by the high corporate tax rates imposed by many states.

Many states impose state corporate income taxes at rates above the national average of 6.6 percent. Iowa, for example, imposes the highest corporate tax rate of 12 percent, followed by Pennsylvania's 9.99 percent rate and Minnesota's 9.8 percent rate. When added to the federal rate, these states tax their businesses at rates far in excess of all other OECD countries.

When compared to other OECD countries:

* 24 U.S. states have a combined corporate tax rate higher than top-ranked Japan. * 32 states have a combined corporate tax rate higher than third-ranked Germany. * 46 states have a combined corporate tax rate higher than fourth-ranked Canada. * All 50 states have a combined corporate tax rate higher than fifth-ranked France.

"David: When Exxon profits get reported, nobody ever asks "How much of the profits are made in the U.S.?" If the press and public don't distinguish between domestic profits and non-U.S. profits, why should domestic vs. non-U.S. taxes matter?"But as economists, it should matter! If 90% of their real profit is here, and 9% of their taxes are paid here, then there is a big problem. Actually, it 10% of their profit is here, and 9% of their tax is here, we're talking a problem.

The 2006 breakdown for foreign tax and U.S. federal and state tax paid for the major energy producers is here.

This Table has been pointed out to Carpe Diem in the past. As it does not fit within the narrow confines of his ideological focus, it is ignored.

As of 2006 year, the major energy producers paid $31.8 billion in federal income taxes, $3.1 billion in state/local income taxes and $53.4 billion in foreign income taxes.

The approximate income tax ratio is:

1. 36% to the U.S. Treasury.2. 4% to the state/local treasuries.3. 60% to foreign treasuries.

It would seem a reasonable proposition that as Exxon has a wider global scope than the average U.S. energy producer, then the ratio of its income taxes paid would be lower to U.S. governments and higher to foreign governments.

If there were no marginal benefit to doing business in the US than big oil would simply exit. Must be some benefit of access to the world's most prosperous, largest, same language speaking, same money taking market.

And let's not forget the STATE excise taxes. California is (I believe) an additional 18 cents per gallon.

Plus, in some states such as CA, a sales tax is included in the price (buyers don't see the tax). Indeed, it's a classic case of double taxation, in that the sales tax is calculated on the price INCLUDING the excise taxes.

In CA the current average sales tax is about 8.25%. And our governator has proposed a special legislative session to raise it another full 1%.

The point is, when one buys gasoline (the most common and visible use of refined petroleum), one ends up paying several times more in taxes than the company nets in net after-tax profit.

In view of the presidential discussion context about tax "reductions", your 50% of low income, 67 million, equal Exxon is a good one. Better though percent of all filers, many do not pay income taxes that equal Exxon's income tax in USA.

According to the D.C.-based Tax Foundation, in 1994 California had the 28th worst Tax Freedom Day -- the hypothetical day when the average family completes paying their federal, state and local taxes and starts working for themselves.

Fourteen years later California has the FOURTH worst Tax Freedom Day. And we won't be satisfied until we are number ONE!

That's what they paid on taxes , worldwide. You can't get an accurate grasp on what the American tax situation is. Furthermore, if I understand correctly, the amount of profit being reported is quarterly, but the taxes reported are annual.

I apologise, as apparently it does say taxes for the third quarter in this post. I have seen conflicting results, so I'll go do further research. In any case, the point about it being impossible to gauge the US taxes compared to other nations from the information we have here.

Actually, this is Sassenach's spouse. I was hoping someone might breakdown whether those reported profits are total (worldwide) or domestic. I know on my tax return I have to list total income including foreign sources. If that is true XOM may be paying more in taxes than it actually makes in domestic sales. I'd be interested to know this.